U.S. Productivity Rises 2.6% in Fourth Quarter, Costs Fall

The productivity of U.S. workers increased in the fourth quarter at a faster pace as companies sought to pare costs to preserve profits.

The measure of employee output per hour rose at an unrevised 2.6 percent annual rate after a third-quarter gain of 2.3 percent, figures from the Labor Department showed today in Washington. Labor expenses fell for a second straight year.

Increased demand may prompt companies such as Intel Corp. (INTC) to ramp up hiring as they bump up against efficiency limits with their current labor force. Declines in labor expenses help keep inflation contained amid rising commodity prices, giving the Federal Reserve scope to complete its unconventional easing program through June.

``Businesses have consistently surprised on the upside by squeezing out productivity gains,'' Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. ``We're hoping some of the pickup in demand will translate into stronger job growth, perhaps at the cost of slippage in productivity.''

Estimates of the 60 economists surveyed for revised productivity figures ranged from increases of 1.8 percent to 2.8 percent.

Another Labor Department report today showed the number of Americans filing first-time claims for unemployment insurance unexpectedly declined last week to the lowest level since 2008. Applications for jobless benefits decreased by 20,000 to 368,000 in the week ended Feb. 26.

Futures on the Standard & Poor's 500 Index rose 1.1 percent to 1,320.00 at 8:35 a.m. in New York. The yield on the 10-year Treasury note, which moves inversely to price, rose to 3.53 percent from 3.47 percent late yesterday.

Labor Costs Drop

Labor costs, adjusted for efficiency gains, fell at an unrevised 0.6 percent pace following a 0.1 percent gain in the prior quarter, the Labor Department's productivity report showed. Labor expenses were projected to drop 0.5 percent, according to the Bloomberg survey median.

For all of 2010, productivity climbed 3.9 percent, the most since 2002. Labor costs fell 1.5 percent after a 1.6 percent decrease in 2009. It was the first back-to-back drop since 1962- 63, the Labor Department said.

Among manufacturers, productivity rose at a 5.9 percent annual pace in the fourth quarter, compared with a 5.8 percent initially reported and following a 1.3 percent in the previous three months.

The Labor Department may report tomorrow that the U.S. added 190,000 jobs in February, according to economists' forecasts in a Bloomberg survey. The jobless rate probably rose to 9.1 percent from 9 percent in January.

Faster Job Growth

The pace of job growth will have to pick up further to reduce the unemployment rate. Economists surveyed by Bloomberg last month projected the jobless rate will average 9.1 percent this year, compared with 9.6 percent in 2010 and 9.3 percent in 2009.

The economy strengthened at the end of 2010 as consumer spending climbed by the most in four years. Revised Commerce Department figures last week showed growth in the fourth quarter at a 2.8 percent annual rate.

Intel is among companies planning to increase payrolls this year. The world's largest chipmaker, announced plans to build a $5 billion plant in Arizona and hire 4,000 employees in the U.S. this year. Intel is stepping up production to satisfy renewed demand for chips following the recession.

The workers will focus on product development, research and design, Chief Executive Officer Paul Otellini said during a Feb. 18 visit by U.S. President Barack Obama to an Intel plant near Portland, Oregon. The new factory, which will produce microprocessors, will be built at an existing company site in Chandler, Arizona.

Raw Materials

Productivity gains are also helping companies absorb higher commodities costs. Whirlpool Corp. last month reported fourth- quarter earnings that fell short of forecasts because of higher materials prices. The Benton Harbor, Michigan-based company said its profit was $2.11 a share during the period, less than the $2.30 a share analysts surveyed by Bloomberg had projected.

``For 2011, we expect positive but uneven demand levels around the world,'' Jeff Fettig, chief executive officer of Whirlpool, said in a Feb. 2 statement. ``Raw material inflation is driving costs higher.''

Fettig said that Whirlpool will mitigate the increased costs with productivity gains and higher prices of its own.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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